Don’t Save Money In The Bank!

*This post has been reviewed by an Illinois Registered CPA. However, when making important financial decisions, it's best to speak with your financial advisor.

Last Updated on August 12, 2022

Learn Why Saving Money In The Banks Is Not Always Worth It

Are you wondering whether to save money in the bank or not? Most people keep their salary and savings in the bank today, whether they’re in their 20s, 40s, or 60s, but there are exceptions. If someone tells you not to save money in the bank, you might ask why. Read on and discover why you might be better off if you don’t save money in the bank.

Don’t Save Money in the Bank if It Makes You Feel Uncomfortable

We are living in uncertain times. Another economic crisis might be looming. Some people don’t trust banks. Keeping money in a bank might make you feel unsafe for several reasons. First of all, your money is no longer under your control. You own it, but no longer manage it. Once you deposit money in a bank, what happens to it?

Some might imagine that it is carefully deposited in a safe and you can go there at any time to withdraw it. That may have been the case decades ago, but things have changed due to the technological revolution. Money isn’t always a piece of printed paper with different values. Today, money is often digital.

You no longer need to take cash when you make a deposit in the bank. You can transmit a digital number that represents the value of your savings. The bank can then move your money. For example, to produce more, it can use it to fulfill loan requests. It doesn’t mean your money vanishes. It is still there, but not in the form of cash.

Under normal circumstances, this system poses no threats, but what if a disaster or crisis occurred? These are events that usually urge people to withdraw their savings. What if everyone went to the bank one day to withdraw their money? Banks wouldn’t be able to fulfill all the cash requests immediately. They would help clients on a first-come, first-served basis. As a result, not everyone would get their money.

What Disadvantages Arise When Saving Money in a Bank?

Are you considering whether it is worth saving money in a bank or not? You might have second thoughts about this decision because you are not sure if it would benefit you financially. Saving money in the bank can prove futile if you have modest savings. The interest you gain will be low. In some cases, it might only help you cover the yearly account maintenance fees.

A bank account also makes your money less accessible. You have every right to withdraw your money or transfer it to a different account, but it takes time. For example, international bank transfers can take days. The bottom line is your access to your hard-earned money is limited if you keep it in the bank. At home, you can take it out of the safe at any time and use it as you please.

Security is another major concern for cardholders, and it should be. If someone hacks your debit card or savings account, they can take everything from you. It takes time for the bank to investigate the case. You might have to wait for months to get your money back. What if the bank says it’s your fault because you shared your card details with third parties? You might have more trouble recovering your loss.

Saving Money in a Bank: Pros and Cons

Saving money in a bank has its advantages, which is why you need to think of the drawbacks.

Here are just a few essential aspects to take into account.

Saving Money in a Bank
Pros	Cons
It is more safe than keeping it at home.	You will pay fees for your account.
It can help you multiply your savings.	The interest rate is usually low.
You are less tempted to use your savings.	You don’t have immediate access to your funds.

Saving money in a bank is good for three main reasons.

1. Safety
2. Interest
3. Accessibility

Let’s analyze these advantages one by one.

Safety

Safety is indeed a common advantage banks offer. It is also one of the main reasons why people save money in the bank. Banks are safe for multiple reasons. They:

• Use modern surveillance technologies.
• Are 24/7 monitored and have security staff.
• Use sturdy online data protection tools.
• Offer insurance.

No matter how well you safeguard your money, it’s hard to beat the bank. If you don’t live in a safe neighborhood, it is something to factor in.

Try to understand how safe your area is. Are there many cases of theft? Do the police have a constant, reliable presence there? How safe you feel in your neighborhood should influence your decision. If you don’t feel safe walking late at night alone there, then your money might not be safe either.

As a solution, you might think about getting a safe to help you store your money. What if someone steals it? Keeping money in other places around the house is another alternative. You can find different places to hide it. Yet, there is no 100% safety guarantee. When you store your money at home, it is more exposed to perils such as:

• Theft
• Fire
• Floods
• Hurricanes

A natural disaster can destroy your house along with your savings. Then again, these might be rare occurrences where you live. The bottom line is you should think things through. Do you live in an area where extreme natural phenomena are frequent? For this reason, you might be better off keeping your money in the bank.

Interest

Things get more complicated when discussing interest rates. This is because they vary tremendously. Some people might earn decent money from yearly bank interest. Yet, in many cases, this is not true. Interest rates are usually low (about 0.03%). Unless you have a lot of money, you won’t gain a lot.

You need to do the math. Calculate how much interest a savings account could bring. Apply a long-term vision. Here is an example.

Return Simulation Based on Annual Interest Rate
Amount of money	Yearly interest rate
$500	1.5%
Interest gained in one year	$7.50
Approximate 2-year interest	$15.50
Approximate 5-year interest	$40

As you can see in the approximate interest rate calculation above, the numbers are modest even with a higher than average interest rate. It is better to earn something than nothing, but also think about the cost of having a bank account. There are different maintenance and annual fees.If you draw the line, much of your interest earnings might go toward these fees.

In conclusion, a bank account can help you make more money, but it may only yield significant results for large savings accounts. If you start with a few hundred bucks, be realistic. You’ll only earn a few dollars per year. Even in five to ten years, the result won’t be significant.

To make the most of these earnings, you also need to research to see what banks offer the lowest fees. Avoid spending these gains just to maintain your bank account.

Accessibility

Many people ask themselves if they should leave their money in the bank to avoid spending it. It is one of those rhetorical questions like why can’t I save money? If you’re afraid of spending your savings, there are other things to focus on, such as your attitude toward money. Control your money, don’t let it control you. You shouldn’t fear the temptation of spending your hard-earned money.

Budgeting Methods to Help You Save Money Without Relying on Bank Interest

To make the most of your savings, work on your money-management skills. They will enable you to handle your finances more effectively and multiply your money.

Time, patience, and careful budgeting are necessary for good money management. Here are three budgeting strategies that can help you save money

• The 50-30-20 budget method
• The digital envelopes system
• The half-payment method

The 50-30-20 budget method focuses on savings. This method urges you to save at least 20% of your income each month. The rest of your budget goes into necessary expenses (50%) and non-essential expenses (30%).

The digital envelopes system is slightly more complex, yet flexible. You get to choose your spending categories. You could create these categories: groceries, rent & bills, non-essential expenses, and savings.

Each category receives a fixed amount of your budget. Each category’s money goes into a separate digital envelope. For each category, only use the money assigned to that expense. This strategy prevents waste by cross-spending. Every expenditure has a predetermined budget.

The half-payment method is a simple strategy to save money for bills on a biweekly pay schedule. From each paycheck, you put aside 50% of your monthly bills’ value. This way, you don’t risk missing these essential payments’ deadlines.

Other Practical Tips to Save Money

Besides these, there are other strategies that can prevent you from spending. They also involve planning and budget tracking.

One example is creating a shopping list. No matter where you go (grocery shopping, clothes shopping, etc.), use one. A concrete list of items minimizes frivolous spending. It will help you save money on groceries and any other items on your shopping list.

Speaking of lists, consider using the 30-day rule. This strategy involves reflection on impulse shopping. Here is how it goes:

1. You see an item you like, but don’t immediately buy it.
2. You keep it in mind for 30 days.
3. After the 30-day period, you reflect. Do you need it? Then, buy it.

In most cases, people realize that item is not necessary. They don’t buy it and manage to save money.

Another way to save is by cutting down on non-essential expenses. First, make a list of these expenses. You can include stuff such as clothes, entertainment, takeout food, etc. Then, set a savings goal. Choose a percentage you want to save on each category every month. Saving money on food and other expenses will prove useful at the end of the year.

Save money by avoiding debt

It’s hard not to have debt in today’s world. Inflation is rising, and we seem to need to buy more and more. This makes us prone to opening new credit accounts. What is the problem with credit cards? Once you start spending money that’s not yours, it may become a habit.

Many people are addicted to their credit cards, but in the long term, these can wreck your finances. They might also be the reason you are unable to fix your credit as fast as you can.

To avoid credit cards, find a budgeting method that works for you and use it each month. Only spend as much as your income allows you to. Save money for larger purchases rather than borrow for it. If you need to save for new furniture, for example, plan ahead. Take as many months as you need to gather the entire amount. Alternatively, buy one item per month, not the whole furniture set.

Another simple way to avoid credit cards is cash. Paying in cash might seem less convenient. You have to carry it around. You also might not feel safe with a larger amount in your wallet. But for someone who doesn’t store money in the bank, this should not be a big problem. Paying in cash limits your options. You can only spend as much as you have on you. As a result, you won’t tap into your savings. More importantly, you won’t spend money you didn’t yet earn.

Frequently Asked Questions (FAQs)

Should I keep my savings in a bank?

If you feel safer this way, you should. Yet, there are some disadvantages to this. Your money is harder to access and is prone to hacking attacks.

How can I store money safely at home?

The most secure way to store money at home is in a safe. If you don’t want to buy one or are afraid it will draw attention, you can:

• Use jars, small boxes or containers to store money
• Hide money in books
• Create a hidden storage space (e.g., beneath a drawer or behind a closet)

Is it worth keeping money in a savings account?

If you have a solid amount to save, it might be worth it. With an annual interest rate of 1%-2%, you can earn some extra money over the years. But with a limited amount, the interest and returns may be insignificant.

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